Investors, mortgage lenders, and the government all see an angle. How it ends isn't clear. By Joe Light

President Donald Trump just fired the starting gun for what could be the biggest public offering of all time.

In a pair of Truth Social posts in May, Trump said he wanted to take public the mortgage giants Fannie Mae and Freddie Mac. His unexpected intervention put a spotlight on the behind-the-scenes tussle over the companies. Well over a decade since Fannie and Freddie faltered at the height of the financial crisis, they are being eyed by investors and the government as a value-stuffed piggy bank that is ripe to be cracked open.

Mortgage investors and home buyers are stuck in the middle.

Whether the president makes it to the finish line is an open question, but the attempt will have wide implications for investors, the federal budget deficit, and home buyers.

The companies are the hidden gears that keep the U.S. housing market turning. The companies don't make mortgages themselves, but buy them from lenders, bundle them into mortgage bonds, and guarantee repayment to investors in case of default. Through that process, they guarantee nearly $7 trillion in mortgage-backed securities, or MBS, and provide liquidity to banks and other mortgage lenders so they can keep making more loans. For decades their stocks were blue-chip staples in investors' portfolios, but the companies failed in the 2008 financial crisis and entered a so-called conservatorship controlled by the U.S. government.

If Trump is to be believed, that is about to change.

"I am working on TAKING THESE AMAZING COMPANIES PUBLIC," wrote Trump. "These Agencies are now doing very well, and will help us to, MAKE AMERICA GREAT AGAIN!"

Strictly speaking the companies are already public. Before 2008, the companies issued roughly $35 billion in preferred stock, and that stock as well as the common shares continue to trade in the over-the-counter market.

The 2008 bailout eventually cost the Treasury about $190 billion. In return the government received warrants to acquire nearly 80% of the companies' common shares as well as a new class of "senior" preferred stock that would rank above all privately owned shares in a restructuring. Those senior preferreds now have a liquidation preference of more than $340 billion, representing the government's claim to proceeds in a restructuring before other investors get paid out. How the government's stake is resolved will determine whether certain investors win or lose their bets on the companies.

Hedge fund managers such as Bill Ackman and John Paulson -- both major Trump supporters -- scooped up shares of Fannie and Freddie for pennies on the dollar after 2008. Since Trump's victory and the president's statements, the shares have skyrocketed. The market value of some classes of Fannie and Freddie's preferred shares, favored by many hedge funds, has more than doubled since the election. Fannie and Freddie's common shares, a slug of which is owned by Ackman, are up more than 500%.

Some investors have estimated that Fannie and Freddie could need to raise more than $30 billion to have enough capital to stand on their own two feet, which would put the offering ahead of Saudi Aramco's $29 billion capital raise in 2019, the largest of all time.

Treasury Secretary Scott Bessent in interviews before the president's posts said the administration didn't plan to tackle Fannie and Freddie until after finishing Trump's tax bill and tariff push. He said the administration's guiding principle would be that whatever is done can't raise mortgage rates.

The Treasury Department pointed to those statements when asked for comment.

Among the least excited about a potential public offering are investors in Fannie and Freddie's trillions of dollars in MBS as well as the mortgage-industrial complex of lenders, servicers, and real estate agents that depend on the steadiness of Fannie and Freddie for a strong housing market.

Mortgage rates would likely rise if the government released Fannie and Freddie, many analysts believe, though details are uncertain and will matter. Among them are the level of capital the companies will be forced to hold in reserve. Depending on that figure, Fannie and Freddie could have to raise their mortgage fees just to earn a return on capital that is palatable to investors, which would likely raise rates.

"Remaining in conservatorship is a better outcome than a quick and poorly conceived exit," says Bob Broeksmit, who heads the Mortgage Bankers Association, an industry trade group.

Any plan to return Fannie and Freddie to private hands will also need to address whether and how the U.S. government will continue to backstop the companies' MBS. The companies were originally chartered by Congress as quasigovernmental entities. Fannie and Freddie executives long insisted that they had no government guarantee, but investors essentially ignored them, trading their securities as if they had such a backstop. When the companies failed in the 2008 crisis, the government made that "implicit" backing official.

Now, some mortgage lenders and fund managers are worried about how investors would treat the bonds if Fannie and Freddie left government control. Any doubt about the government's backing could cause mortgage rates to rise.

"I want to be clear, the U.S. Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President," Trump wrote in a Truth Social post in May.

That latest message from the president leaves the path ahead unclear. It suggests that despite his earlier pledge to take Fannie and Freddie public, he still intends to retain control of them somehow. That prospect has worried some Fannie-Freddie shareholders in recent days.

There are indications that the president's posts surprised some administration officials. Treasury officials had told some mortgage investors in the days before the posts that serious work wouldn't begin on a plan until after the president's "one, big, beautiful bill" passed Congress, according to a person familiar with the matter.

"Any actions under consideration will be carefully evaluated in a safe and sound manner to deliver on the president's historic agenda," said White House spokesman Harrison Fields in a statement.

Former private-equity executive Bill Pulte leads the Federal Housing Finance Agency, or FHFA, and controls the conservatorship for Trump. In meetings he has expressed an interest in listing Fannie and Freddie shares on the New York Stock Exchange, where they haven't traded since 2010. That move would likely raise the price and liquidity of shares and could make them eligible to be owned by more investors.

Otherwise, Pulte has said he is deferring to the president for what exactly should happen with the companies, according to people familiar with the meetings.

In TV interviews since Trump's posts in May, Pulte has said he can't imagine Trump relinquishing control of the companies and that the president could decide to sell shares of the companies without them actually leaving government control.

"We are studying how, if the president elects to take Fannie and Freddie public, it can be done in the safest and soundest manner which includes keeping them in conservatorship," said an FHFA spokesperson in a statement. "In any scenario, we will ensure the MBS market is safe and sound and that there is no upward pressure on rates."

A plan could turn a Fannie and Freddie offering into less of a bonanza for private shareholders and more of a government cash grab if Trump decides to hold on to the companies but somehow monetize the government's stake of warrants and senior preferred shares. Sales of the shares could go to pay down the deficit or even become the seed corn for a sovereign-wealth fund, which Trump has expressed interest in creating.

"The hard part is we don't even know what they're motivated to get. Is it revenue? Is it a payout for shareholders?" says Michael Bright, who heads the Structured Finance Association, a trade group that represents bond investors.

Still, some analysts think that Trump will eventually get a complete release done. Analysts for policy research firm Capstone assign an 80% probability that Fannie and Freddie are privatized under Trump. A potential next step, say the analysts, is an executive order from the White House that directs agencies to come up with a release plan.

Key to Ackman and other shareholders' investment thesis is for the government to essentially waive its $348 billion in preferred shares. That is called for given the $301 billion in dividends that Fannie and Freddie have paid to the government since being taken over, the shareholders argue. If the government doesn't waive its preferred shares, its stake--along with that of the private preferred shareholders--could be converted to common stock, heavily diluting private investors.

"Shareholders don't have their hands out. The opposite is the case," Ackman said in an X post on June 3. "Hundreds of billions of dollars of funds that belonged to [Fannie and Freddie] were unilaterally taken by the government years ago, and the companies never received credit for these payments."

But it may be an uphill climb. The first Trump administration attempted to end government control of Fannie and Freddie before being derailed by Covid-19. In that process, the Treasury Department found that waiving the senior preferred balance would be illegal, former FHFA director Mark Calabria wrote in a 2023 book. It was instead considering converting the government stake to common equity.

Calabria now works at the Office of Management and Budget. An OMB spokesperson did not respond to a request for comment.

Ackman and other investors have argued that if their shares are wiped out, demand for the companies' new shares would evaporate.

"Ultimately the government has to clarify what Treasury is going to do with its senior preferred stake. That's the billion-dollar question in all this," says Capstone analyst Spencer Van Every.

Also unanswered is whether the companies will pay a fee to the government for their backstop, whether the government will retain a stake in the companies, and even whether Trump will give up control.

For nearly 17 years, the countries' largest MBS investors, hedge funds, mortgage lenders, and the government have jockeyed over how to resolve the last outstanding bailout from the 2008 crisis and in so doing determine the future of $7 trillion in mortgage bonds and hundreds of billions of dollars' worth of stock. There's no telling where the companies end up, but the fight is on.

Write to Joe Light at joe.light@barrons.com

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June 13, 2025 21:30 ET (01:30 GMT)

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